Will Swine Flu Derail An Economic Recovery?

As the mainstream media picks up the Swine Flu story, there is a weird disconnect in the financial media, which is essentially silent on the potential for pandemic to disrupt the Mexican and U.S. economies and thus the stock market, Charles Hugh Smith writes.

If you scan the financial news, swine flu is a non-event; it's the rear-view mirror of the (heavily massaged) first quarter GDP number which dominates the "news". I say it's massaged because the game is played thusly: a positively spun GDP number is released (it doesn't have to do anything but beat lowered expectations by .1% to work its bullish magic) and then a month or two later it is "revised downward" in a tiny news item nobody notices. Oops, that means it really wasn't so great, huh. But no matter--the "good news" has already been hyped.

Isn't it rather peculiar that an unpredictable and potentially fatal flu epidemic apparently has no potential business-financial impact? What happens when Americans stop visiting Mexico? How many people are tossing aside prudence and taking the next plane for Mexico City?

How many business travelers are deciding to postpone their trip to their Mexican HQ? How many people trust the Mexican authorities to 1) fully disclose the spread of the virus and 2) control a highly communicable disease in a nation with many rural areas unserved by authority or healthcare?

Would you trust your health in these circumstances to any authority's calm assurances that "everything's under control"?

How many enterprises in the U.S. will decide to delay trucking from Mexico? Isn't that mere prudence?

And as the flu pops up in California and Texas, won't some cautious parents cancel that visit to Anaheim Disneyland? I mean, why take chances?

Or is the financial media's silence just part and parcel of the usual propaganda, the dismissal of potentially negative news and the constant hyping of "good news" even if the numbers are suspect or manipulated?

It seems rather obvious to me that swine flu may well have already tipped a skittish American psyche back into bunker-defense-saving mode. If you read or watch even a single news story about this flu, ignoring the most sensationalist aspects, it is still a very sobering turn of events.

Let's say the blogosphere bits about it being a bioweapon are false. Nonetheless, it is worrisome that this strain has recombined features of influenza from several continents, that it has killed people in their prime, just as the 1918-1919 pandemic did, and that it is obviously highly communicable, unlike say, HIV.

These are worrisome features, and caution is a highly rational response to the many unknowns we collectively face.

Since the financial media isn't asking many questions, allow me to step into the journalistic breach:

How many people will absorb the news and decide their teens don't need to go to the mall this week, or indeed, the next few weeks, until the extent of this epidemic becomes clearer?

How many people will decide it is prudent not to frequent airports, theaters, malls, concert halls, etc.? What will that do to revenues, incomes and tax receipts?

How many small businesses connected to tourism and what might be called the "animal spirits" sectors like restaurants--that is, those enterprises which depend on consumers feeling confident and ebulllient--will feel a sudden chill from this potential epidemic?

How many corporate titans can look ahead and be absolutely confident that a global pandemic--even one with a low fatality rate--will have absolutely no impact on their sales, profits or operations?

Consider the history of recent near-pandemics: bird flu in Hong Kong and SARS in the People's Republic of China. The authorities in Hong Kong went to extraordinary lengths to insure that every chicken in Hong Kong was killed and properly disposed of. That required a well-funded and staffed command-control structure and an authority which commanded the respect or fear of the populace, and a central authority that could order something done and actually get it done.

The same was true of China and SARS. Entire cities were shuttered in a matter of hours, no questions allowed, no lawsuits, no protests--it was ordered and it was done.

Can anyone seriously believe either Mexico or the U.S. has the same authority in place and the same compliant populaces as did Hong Kong and China? You can bet that if China shared a border with Mexico it would already be closed. Meanwhile, the U.S. is dithering, as if the threat is modest and easily controllable.

Isn't it obvious the key driver in the decision to leave the border open is the fear that closing it would have financial/business repercussions? Profits might take a hit, for goodness' sakes, were trade disrupted. One wonders if the authorities in the U.S. and Mexico, in their urgency to calm their citizenry, are responding not to public health realities but to the financially inspired fear that any large-scale response to this potent swine flu might have undesirable financial consequences.

So is acting like it's all under control taking care of the two nations' health, or the "health" of their deeply intertwined economies? Money talks and public health walks-- or so it seems at this point.

While the financial media gushes over "the bottom is in" hype--earnings are up! GDP is no longer falling as fast as it was! The recession will end in 3-6 months, so jump into stocks now!--I wonder if the swine flu will tip the stock market from bullish euphoria back into fear of the unknown.

It is a truism that the market hates uncertainty above all. Here the government and the media have worked overtime to establish the narrative that "the bottom is in, so buy buy buy" and this "outlier" swine flu pops up and throws a monkey wrench into this well-oiled propaganda machine.

Does anybody really give a darn about the bogus "bank stress test" or retail sales if they are concerned for their kids' health? Here we have the World Health Organization declaring a "public health emergency," but the border is wide open for "business as usual," and we're all supposed to focus on Verizon's earnings or the profitable wonders of Apple's apps store?

None of that matters, and it is the towering height of propaganda that the financial media is silent on the easily forseeable consequences of a swine flu epidemic, never mind a pandemic. The financial Powers That Be want very desperately for you to base your decisions on the flickering image in the rear view mirror--GDP only fell 5% instead of 6%, etc.--instead of what is buckling the road just ahead.

This is not just hubris but irresponsible.The Wall Stret Journal might not breathe a word about it, but anyone with a restaurant can look ahead and feel their stomach drop. The first--and the most prudent--response to the outbreak of a disease which spreads in droplets in the air is to simply not go out.

And indeed, large-scale public health studies have shown that isolating those carrying the disease is the only way to put the brakes on its spread.

The public health infrastructure is the U.S. is certainly competently staffed, but I have no idea if it is competently funded. Americans might well be thinking not of their hard-working public health officials and scientists but of the Federal government's incompetence in Hurricane Katrina. Federal officials really have to get this right, and quite frankly I fear not that science won't be up to the task but that politicians won't be up to the task.

I can already hear the whispered warnings being passed around the White House and Congress: the economy is in a fragile state, we don't need any upsets right now; let's be careful.

Yes, let's be careful: not about the stupid economy, but about the health and safety of our citizens. The world won't end if the lumbering, hollowed-out U.S. economy spends another quarter or two in recession, but the world may well end if someone in your own family or circle of friends contracts swine flu due to the authorities' fear of "disrupting the economic recovery."

Just don't expect to read anything remotely cautious in the financial media: everything's on track for a "recovery" in the stock market and everyone's bonuses, and no swine flu is going to be allowed to derail that enrichment.